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Midterm1-MorePrac - 154 Parkin Chapter 5 Measuring GDP and...

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Unformatted text preview: 154 Parkin - Chapter 5 Measuring GDP and Economic Growth rel... am (7434 was Macroeconomics, Eighth Edition 1) Assume a small nation has the following statistics: its consumption expenditure is 5}; investment is $2 million, government purchases of goods and services is $1 million, a goods and services to foreigners is $1 million, and imports of goods and services from is $1.5 million. Calculate this nation‘s GDP. mil-J3. wk ‘ [31153.1 '3” l {urn Answer: The nation's GDP equals the sum of consumption expenditure, investment, gm-vm, purchases of goods and services, and net exports of goods and services, where net in exports of goods and services equals of goods and services exports minus impum ‘ d goods and services. 50, GDP = $15 million + $2 million + $1 million + $1 million - million : $17.5 million. Item Billions of dollars Consumption expenditure 6,258 Investment 1,623 Government expenditure on . 1,630 goods and serv1ces Exports of goods and services 998 Imports of goods and services 1,252 2) The table above gives the values of different expenditures in the United States during 1999. Answer the following questions about the United States. ' a) What was the value of net exports of goods and services in 1999? b) What was (nominal) GDP equal to in 1999? c) What was the (nominal) value of total production equal to in 1999? SI: Answer: a) Net exports of goods and services equals the value of exports of goods and servirm, $998 billion, minus the value of imports of goods and services, $1,252 billion, or —$254 billion. b) GDP equals the sum of consumption expenditure, $6,258, plus investment, $1,623, plus government expenditure on goods and services, $1,630, plus net exports, 43254, or $9,257 billion. C) The value of total production equals the value of GDP, so total production was $9.357 billion in 1999. 3) On January 1, 2008, United Delivery had trucks valued at $1.3 million. During 2008, United Delivery purchased new trucks valued at $500,000. If the value of the trucks on December 31, 2008 was $1.5 million, what is the amount of its net investment and its depreciation during 2008? Answer: Net investment is the change in the capital stock from one period to the next. For United' Delivery, net investment equals $1.5 million - $1.3 million = $200,000. Net investment also equals gross investment minus depreciation, so depreciation equals gross investment minus net investment. Gross investment, the total amount spent on new capital equipment, was $500,000. Net investment was calculated to be $200,000. Therefore ‘ depreciation equals $500,000 — $200000 : $300,000. Numeric and Graphing Questions 155 Data for 2006 a) What does nominal GDP equal in 2006? b) What does real GDP equal in 2006? c) What does nominal GDP equal in 2007? d) What does real GDP equal in 2007? percentage change in production between 2006 and 2007 valuing the production at 2006 Because both percentage changes are 50 percent, the average production change is 50 percent. Therefore real GDP in 2007 equals real GDP in 2006 times 150 percent, or ($8.00) x (1.50) = $12.00. Numeric and Graphing Questions 161 Quantity Price ; : I The tables above give the purchases of an average consumer in a small economy. (These consumers purchase only shampoo and pizza.) Suppose 2006 is the reference base period. .it What is the cost of the CPI basket in 2006 and 2007? b) What is the CPI in 2006 and in 2007? .7] What is the inflation rate between 2006 and 2007? \uswcr: a) For 2006 the CPI basket costs $171.25. For 2007 the CPI basket costs $178.75. b) For 2006, the base period, the CPI is 100.0. For 2007 the CPI is ($178.75/$171.25) x 100, which is 104.4. c) Between the two years the inflation rate is equal to [(104.4 - 100.0);‘100j x 100, which is 4.4 percent. Price (2007) Quantity Quantity Price (zoos) mm m:- above give the Purchases of a typical consumer in a country Comprised Of one large consumers purchase only restaurant meals and Parking. The Year 2007 is the :‘rtrn-ntu base period. =| lind the total cost of the CPI basket for 2007 and 2008. n '-‘- “hat the CPI in 2007 and in 2008? i l h hat IS the inflation rate between 2007 and 2008? Ail-Hg rr: ‘3) “1‘.le 3 l (a. :JI'LHIR I Item 3' ill" tabla, til 't Illi'hc The total cost of the CPI basket in 2007 equals (100 meals) x ($10) + (50 parking) )1 (5100) = $6.000. The total cost of the CPI basket in 2008 equals (100 meals) x ($12) + (50 Parking) * ($97-50) = $6,075. The quantities are the same in 2007 and 2008. If the quantities differed, the 2007 quantities Would be used because 2007 is the base year. bl The CPI in 2007 is 100 because 2007 is the base period. (Alternatively, the CPI in 2007 "W's “30 x ($6.000)/$6,000) = 100.) The CPI in 2008 equals 100 x ($6075)/($6,000) = C) m The inflation rate between 2007 and 2008 equals 100 x [(101.25 - 100) —: (100)} = 1.25 ‘l'cent. 166 Parkin - Macroeaonomz’cs, Eighth Edition Real wage rate (2000 dollars) Employment (billions of (trillions of hours per year) 2000 dollars) 3) The first table above gives the labor demand and labor Supply schedules for a nation. The second table gives its production function. a) What is the equilibrium real wage rate and the level of employment? b) What is potential GDP? If you cannot determine a precise amount, give the range in which potential GDP must lie. Answer: a) The equilibrium real wage rate is $15 an hour because this is the real wage rate for which the quantity of labor demanded equals the quantity supplied. The equilibrium level of employment is 300 billion hours a year. b) ' With employment equal to 300 billion hours per year, potential GDP is equal to $3.8 trillion. ...
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This note was uploaded on 07/30/2008 for the course ECON 3 taught by Professor Peters during the Spring '07 term at UCSD.

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Midterm1-MorePrac - 154 Parkin Chapter 5 Measuring GDP and...

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